Gulf Resources Inc (GURE) 2024 Q3 法說會逐字稿

Greetings, and welcome to the Gulf Resources Third Quarter 2024 Earnings Conference Call.

(Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Helen Xu.

You may begin.

Thank you, operator.

Good morning, ladies and gentlemen, and good evening to those of you for joining us from China.

And we'd like to welcome all of you to Gulf Resources' third-quarter 2024 conference call.

I'm Helen Xu, the IR Director.

Our CEO of the company, Mr. Xiaobin Liu, is also joining this call today.

I'd like to remind you to all our listeners that in this call, certain management statements during the call will contain forward-looking statement information about Gulf Resources Incorporation and its subsidiary business and the products within the meaning of Rule 175 on the Securities Act of 1933 and the Rule 3b-6 under the Securities Exchange Act of 1934 and are subject to the Safe Harbor created by those rules.

Actual results may differ from those discussed today, taking into account a number of risk factors including, but not limited to, the general economic and business conditions in the PRC, the risks associated with the pandemic outbreak or future product development and production capabilities, shipments to end customers, market acceptance of new and existing products, additional competition from existing and new competition from the bromine and the other oilfields and power production chemicals; changing technology, the ability to make future bromine assets and the various other factors beyond its control.

All forward-looking statements are expressly qualified in their entirety by this cautionary statement and the Risk Factors detailed with the company's reports filed with the SEC.

Gulf Resources assumes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Accordingly, our company believes expectations reflecting in those forward-looking statements are reasonable, and there can be no assurance of such will prove to be correct.

In addition, any reference to the company's future performance represents the management's estimates as of today, November 20, 2024.

For those of you unable to listen to this entire call at this time, a replay will be available at the company's website.

The call is also accessible through the webcast, and the link is accessible through our website.

So please locate our press release issued earlier for the details.

I'd like to start out the call by saying that the company regrets that the change in auditors made it difficult to file out our 2023 10-K and 2024 10-Q in a timely manner.

We also regret that we have not had a conference call since the end of the third quarter of last year.

We recognize that we have to be active in communicating with investors and hope today will be the start of a new discussion between the company and its investors.

In this case, we will focus on the third quarter of 2024, but we are also willing to take questions about the first and second quarters as well as the fourth quarter of last year.

I'd like to briefly cover the financial results.

Then I will summarize a few issues of importance before turning the call over to Mr. Liu.

And then we are opening -- we will be opening for the Q&A section.

So since the company filed its 10-Q yesterday for the third quarter 2024, all our financials are in the 10-Q filed.

So for the three months ended September 30, 2024, the revenues for the third quarter were approximately $2.2 million, a decline of 21.8% compared to the same period of last year.

The net loss was approximately $3.5 million and the basic and diluted loss was $0.33 per share.

During third quarter, the bromine revenues declined by 68% to approximately $1.6 million and crude salt revenue declined by 26% to $654,000.

Bromine operation loss was approximately $4.0 million, while crude salt operation loss was $102,000.

The losses from operations from our currently inactive chemical and natural gas business were approximately $339,000 and $39,000, respectively.

For the nine months ended September 30, 2024, the revenues were approximately $5.9 million, a decline of 74.4% compared to the same period of 2023.

The losses from operations by segment were as follows: bromine was approximately $13.5 million, crude salt was approximately $47,000, chemicals was $990,000, and natural gas was $140,000.

The net loss was approximately $40.6 million and the basic and diluted loss per share was $3.78. We incurred a loss of approximately $29.2 million from the disposition of equipment and purchased approximately $60.5 million worth of new equipment.

Our cash position declined to approximately $11 million from $72.2 million as of December 31, 2023.

The total assets at the end of third quarter was approximately $193.9 million.

There are five major issues we'd like to highlight during this call: the economics of the bromine business, the purchase of lead for crude salt and bromine and our chemical businesses, our natural gas business, and the last is the cost of our flood prevention project.

Firstly, let's look at our bromine segment.

To better understand the economics of our bromine segment, I'm going to focus on the results of the third quarter from year 2022, 2023, and 2024.

So during the year 2022, the company earned approximately $10.6 million in bromine.

But in year 2024, we lost $4 million.

During this period, revenue declined by 92%.

Much of the decline was due to the price of bromine, which dropped 68%, but some was also due to the lower level of [salt] produced, which declined 75%.

During this period, our utilization dropped from 34% to 8%.

One impact of the lower level of production and the decline in utilization was that the cost per ton more than doubled from $2,773 to $5,709 because overhead, depreciation, amortization, and other costs had to be allocated over a much lower level of production.

Like oil, good or any other element, our company has a relatively fixed amount of bromine available for mining in our properties.

When the pandemic hit, demand for bromine, especially for antiseptics surged and the price of bromine declined, management decided to limit the sales and protect our mineral assets for the time when prices rebound.

When we made this decision, management recognized that the lower level of production would impact our profits.

However, we believe it will have been a disservice to shareholders to sell more of our bromine at extremely low prices.

Since the end of third quarter, bromine prices have increased about substantially.

We believe we are approaching the time when we will choose to increase production and utilization.

Second issue was about the purchase of land for the crude salt field and bromine.

In June, the company had an opportunity to secure additional land for crude salt field and bromine from groups in our production area nearby.

At the time, we were aware of the existing price of bromine and the impact of that price on the likely earnings we would have in this quarter.

Nevertheless, we believe this was an exceptional opportunity for us to gain control of more land for production of crude salt and bromine in the future.

Our management team conducted an analysis of this opportunity and concluded that acquiring its crude salt fields would enable the company to produce most crude salt and bromine and that the cash we invested was likely to be returned in the next four to five years.

We also want our shareholders to know that we are still in negotiations with sellers over the timing and the terms of the stock portion of the agreement.

The company wants investors to understand that we would not have made this decision in June if we were not convinced this was an excellent short-term investment that would not jeopardize any of our other opportunities.

Third issue is about our chemical factory.

While the company made the decision to spend money on the crude salt field, we also decided to postpone spending money on completing our chemical factory.

We have invested about $45 million out of a projected $69 million in building this new chemical factory.

However, as we started in the industry, we concluded that the most companies in our niches, currently, some of them are losing money.

Further, we continue to see interesting new opportunities in areas like zinc-bromine and sodium-ion batteries.

If we were to pursue one of these opportunities, we would modify the configuration of our factory.

Rather than commit capital to a business that will not produce short or intermediate-term returns, we decided to wait until we have better visibility as to the best opportunities.

We are still committed to our chemical business.

We are looking at many different alternatives, including potential joint ventures and we'll move ahead with chemicals as the market improves.

The third is about our natural gas project.

The company has also refrained from investing money -- more money in all this natural gas segment.

We have been working with local authorities and they are finalizing the Provincial Environmental Plan.

During this period, we have become convinced that we may maximize our returns by strategy such as in natural gas and bromine in Sichuan Province by finding the right joint venture partner.

The last issue is about flood prevention.

In flood prevention project, in year 2023, the company spent slightly more than $50 million on flood prevention because the work was conducted in neighboring rivers that were not part of our property.

These investments were expensed instead of capitalized.

These expenditures impacted both our earnings and balance sheet.

However, we believe they will benefit us in the future.

In the past six years, the company spent about $47 million in flood repair after the two typhoons.

As we have previously reported, not only did the flood damaged our facilities, they also impacted our ability to produce from some of our wells.

With this flood prevention project completed, we believe this may help the company to obtain approval to open our bromine factories number two and number 10.

So now let me turn the call over to Mr. Liu for some comments.

(Spoken in foreign language) So as Mr. Liu stated that at the beginning of this call, we are very pleased to have our filings, which is up to date and look forward to renewed communication with our investors.

The economy of China has been difficult, but we see signs that it is beginning to recover.

When we saw the weakness, we postponed the final delivery of equipment for our chemical business because we did not see a short-term path to profitability.

We are continuing to explore opportunities for zinc and bromine and sodium-ion batteries that could potentially offer much more attractive returns and are considering potential partners in this field.

We also stopped spending money on natural gas while we considered various joint venture opportunities and strategies.

We made our investment in acquiring land for crude salt because we believed this investment would produce more strong returns in coming years.

We want our investors to understand that the company are making decisions that are in the best interest for its shareholders.

The company also believes that our [flood] prevention project will enable it to produce more bromine and crude salt and allow the company to open its (inaudible) closed factories.

The company is now well positioned to capitalize if the Chinese economy improves, as the company believes it will since the end of the last quarter, bromine prices have increased substantially.

We believe that this trend will continue, and we appreciate the patience of our shareholders and look forward to more active communication in the future.

So Tom, operator, can we open for the Q&A section?

(Operator Instructions) [Qui Min Jin].

I have been an investor for more than 10 years.

And then I still remember a few years ago that when you did the quarterly report, seeing nice things and seeing confidence, [staying] with us.

And then in the report, you just stated that you spend millions of dollars in the new field, while your revenue and the profit is substantially going downhill.

And then I would like to say -- I'd like to hear that how you -- what is your reasoning and your color on investing millions of dollars while the revenue and profit is substantially going down here?

And you said that, that investment is going to be returned back to profit or whatever what you hope within four or five years.

I'd like you to kind of share some light on that.

What is the reasoning behind that so that we would have a better understanding?

Instead of keep saying that we're very hopeful, please stay with us and like what you said a few years ago, but nothing has changed.

That's my question.

Can you just be more specific about your question based on my understanding that you are talking about the crude salt acquisition.

Am I right?

You want to get a more clear explanation why the company expects it will have a good return in coming four to five years?

This is your question?

Yes.

You keep investing, including whatever typhoon reinforcing facility, you spend millions of dollars.

You said that it's a better prevention.

I mean, while the revenue is going downhill, meaning as a businessman, I would not do anything until I see the uptrend in the market and the demand is going up.

That's one I'm going to invest.

But you do that while the revenue is still down, there's no hope of the revenue going up.

And then you said that we do everything we can to -- for the benefit of the investors.

I was in China in July of 2024 this year.

During business hour, I keep calling the number on record about 20 times, no one answered the phone.

Is this the sign that you do everything for the benefit of the investors?

There is not even a person to answer the phone.

I thought the business is bad.

There is no way for me to sell my share because I have a substantial loss on my investment.

So I'm very upset about this thing.

I keep calling the number on record.

No one on the phone.

Can you answer this question as well?

Thank you.

(Spoken in foreign language) So firstly, about your question about the phone numbers of the company.

Because it's a fixed number and in the office, sometimes because people now in China, they normally use mobile phones.

And we cannot make sure every time there is people sitting there.

But if you want to visit the company, you can make appointment or e-mail me first, then we can visit.

And I think there's an investor who have been in the factory -- company sites twice, visited successfully.

There is no doubt on it.

And then about your question, firstly, let's look at the flood protection project.

Mr. Liu has two points.

Firstly, we do this; it's required by the government because based on the government policy, there is a mineral restoration policy, which means that the company's mining industry, due to its mining impacted on the environment and the company site and the surrounding area.

So the company has to do this -- to do the flood protection project to following the government requirement.

Secondly, because this project can help the company to avoid future potential flood damage.

This is about the flood protection project.

Secondly, about the crude salt acquisition project.

Because for the long-term environmental issue, the government requires the consolidation -- consolidated production of bromine and crude salt.

So for company, currently, we do not have sufficient place for the wasted halogen water to flow to our crude salt aqua duct.

So in order to do the consolidated production, we must have enough crude salt fields for this consolidated production and for the long-term growth of the company.

This is about the crude salt project.

So for short term now, we see the company temporarily at a loss because the low price of bromine as a market, the company intentionally controlled the production and the selling volume of bromine, so which temporarily caused the company loss at this moment.

But we think following the Chinese economy recovery and the price of bromine will be increased then the company will start to increase its production as well.

Accordingly, the profit will also increase.

(Operator Instructions). [John Rawls].

Yes.

I have two questions.

The first is when do you expect to make decisions about the future of the chemical factory and about the natural gas project?

Natural gas was announced 12 years ago.

And virtually every interaction since then has been that we are contemplating having a partner doing it this way, doing it that way.

I wonder when a decision is actually going to be made.

Can you respond to that question?

(Spoken in foreign language) Hi, John.

So here's the response from Mr. Liu.

First, look at the chemical segment, when it will be making the decision.

It totally depends on the market because the company management think that when we do a big investment, we have to see the future of these products or this segment.

So some years ago, when the company started this chemical segment, it was a relocation project.

That time, we can see in the market, this project with really good profit and good future for antibiotics with raw materials to be used for human and animals.

But the plan was temporarily stopped because the market for these products and the future is becoming dramatically decreased.

And if the company starts to continue with this project, it may face loss even.

So now, the company is looking for some other products or some other industries this can be transferred to.

So totally depends on the next appropriate product, which can meet the market demand and with good future.

This is the first one.

Second one, about the natural gas project.

The major problem is that the company now wanted to get cooperation with state-owned operation and in order to better get the government approval on this natural gas mining and trading.

But the state-owned factories, with very low efficiency, even our management team always frequently, they had to fly to Sichuan to be in discussion with the state-owned teams, but we cannot confirm when this will happen.

This is our current situation.

Okay.

My second question has to do with the bromine operation.

It's still quite profitable, high gross margin even at today's prices.

So I don't understand your reasoning about limiting production.

I understand that you might get more for the sales when the price of bromine goes up.

But today, you're getting significant losses from this restriction of production.

And the cash that the company now has is much less than it was in the past.

It seems to me you're flirting with bankruptcy by taking this approach.

Let me just finish.

All the cash has been invested in things which, to this point, do not seem to impact your revenue.

So restricting your revenue seems to me a policy that's going to hurt the company in the long run.

Okay.

About your first part of this question, I think we explained earlier because the company thinks our bromine resources are limited such as oil and gold.

So in order to get a better maximized profit, the company intentionally controlled its production at this very low market selling price.

But when the Chinese economy starts recovering, when bromine prices increase, our production will also increase as well.

This will increase the company's revenue in the future as well when Chinese economy comes back, recovery.

About your second question, maybe I can translate to Mr. Liu and see what's his comments on it.

(Spoken in foreign language) Okay.

So John, here's Mr. Liu's comment that (inaudible) this is nonsense -- it does not have any relation to bankrupt because all these actions, all the money, cash we spend are for the long-term growth purpose of the company.

So firstly, if we look at the flood protection project, we have to follow China rules because based on China rules, the mining industry have to do this for the mineral restoration.

These were the company's liabilities.

For so many years, the company is upgrading bromine resources, but never do this.

So now, the company is doing this since the government is requiring it to do.

So this is a necessary, must-do action.

It should help the company build a strong and a necessary fundamental position, foundation for future growth.

Secondly, the crude salt assets acquisition, which should secure the company's future, can produce more bromine with more crude salt field.

So all these two actions have secured the company to be legally long-term production and growth.

All this cash are spent on this purpose.

[David Chu].

I want to ask, you have spent so much money in improving the foundation or infrastructure of the field, but you have no guarantee to generate increased revenue or sales.

And of course, you cannot control the price as well.

So does the management or the Board has any evaluation or done any research on how to secure increased revenue?

That's the question.

Okay.

Hi David, because there are two major segments, the first one is about the flood control project.

This one was based on the government requirements.

We had to do this.

Then the second one is the crude salt field acquisition.

So I mean, if you'd like a real analysis, you mean the second one or the first one?

Management or the Board did any research on the future demand of the product and how are they going to increase it in order to generate more revenue?

Because you spend so much money on the project.

And if you do not have any plan to generate increased sales and revenue, then those money are powering into a hole.

(Spoken in foreign language) Yes, we did the analysis based on the market and based on the acquisition we did like how many -- after our acquisition, this -- the company, how many tons we produce and how it will influence the company's production capability.

And even based on current low market situation, we did all the analysis on a very conservative perspective and with profit like we estimated like we before said, which we estimate will get retained in future four to five years on a conservative point of view.

What is the management's estimation of this current quarter's sales volume?

Current quarter?

You mean fourth quarter?

Yes.

Current quarter, the fourth quarter.

Does the management comes up with any estimated sales?

The volume, do you mean?

Volume on revenue.

(Spoken in foreign language) Yes, we will have announcement later on for the transparency and fairness to all shareholders.

(Operator Instructions) David Chu.

So the management cannot provide the current quarter estimation.

Does it mean that the management also do not have a full picture on 2025 sales figure and volume?

No.

Hi David, because for the transparency and fairness to all our shareholders, this number, we can provide for guidance but cannot only disclose in this conference call.

Why not?

Yes, we will make an announcement later on in our press release for the guidance.

Okay.

Another question.

Is it possible for the shareholders to visit the factory or the plant?

Yes, of course.

So the company can arrange to have the shareholders go to the factories and visit the factories directly?

Yes, we have shareholders visited the company actually already.

When is that?

I think twice, I cannot remember the clearly months.

But this shareholder, as my memory, at least twice.

But you have no idea when?

Let me check.

Most recently was -- I think end of last year or beginning of this year is the most recent one.

Okay.

What is the best time to visit the factory?

(Spoken in foreign language)

What's the reply?

What's the best time to visit?

Yes, yes.

I'm waiting for Mr. Liu to respond.

(Spoken in foreign language) Normally, just notify the company or e-mail me in advance.

You can visit the company site or

(inaudible).

Okay, thank you.

Another question concerning the shareholdings.

I want to know what is the percentage the management or the Board of Directors own the company's shares?

I think you can reference to the company's most recent Annual General Holders' Meeting proxy being filed on SEC website.

And I can give you the link if you e-mail me.

You mean under the SEC filing?

Yes.

And just a follow-up.

It looks like that they do not have a majority ownership of the company based on the number of shares they have.

Is that correct?

Yes.

I cannot clearly remember it like you mean who?

Are there any other type of shares that the management owns that really control the company or they are just purely like the other shareholders, just own ordinary shares and control the company?

I think you can reference the filings on the SEC website.

If you need, I can e-mail you the link.

I can't find it in the website.

That's why I'm asking.

It sounds pretty strange.

It indicates that the management own a pretty small number of percentage of the shares, but they control the company, okay?

So there must be some other ownership that the management or Board has that we do not know.

I don't get you because as I see here, Mr. Yang and his family owns around 18.5%.

I don't know.

So that's a small percentage.

I know, that's a small percentage.

And based on that percentage, they can easily be outvoted and kicked out of the management by the majority of other shareholders.

So if they own just less than 20% of the company, but they control the company, that's really strange.

That's why I'm curious.

Are there any other shares ownership that protect them or help them to control the company or other shareholders on the line can throw some light on this?

The company has Board of Directors, and we have Annual General Meeting as well.

Yes.

I understand.

So I would say the other 80% ownership shareholders didn't do anything to address the company issues.

They just sit there and didn't do anything at all and that the minority shareholders do the things.

That's a pretty strange issue.

Any other shareholders on the line to comment on this?

Qui Min Jin.

I consent with the gentleman's opinion on the majority of the owners.

They're not in control of the company.

From the website, they indicated as of December 2023, all the major control people like CEO, CFO, and the -- a few others, they own only approximately 58,000 shares, which is really a fraction of the company's entire holding.

That's the minority.

And also, I want to follow-up with my previous questions, which were not exactly translated correctly.

I was in China in July, and I called during business hours about 20x, no answer.

And then Mr. Liu, the company's CEO said that you can schedule.

I also, in the past year or two, sent e-mail to Helen twice with no answer.

And with no answer from my e-mail request and with no answer to anybody's phone call from the company phone record, how can I, as an investor, to schedule something to visit or get any communication at all from the company?

That's my question.

Qui Min, I don't know when did you send me e-mail because I just checked on my mailbox.

I did not get any e-mail from you.

But there are shareholders which have visited the company site.

You can send me an e-mail in advance and arrange your trip to company.

We have reached the end of the Q&A session at this time, and we do thank you for your participation.

I'd now like to turn the floor back to Helen Xu for closing remarks.

Hi, operator.

Since the time is up, I think we can close the call for today.

Thank you.

Thank you.

This does conclude today's conference call.

You may disconnect at this time, and have a wonderful day.

Thank you for your participation.